CITATION: 10 Dundas Street Ltd. v. Koryo Korean BBQ Franchise Corp, 2015 ONSC 4564
COURT FILE NO.: CV-14-517183
DATE: 20150804
ERRATUM RELEASED: 20150813
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
10 DUNDAS STREET LTD.
Plaintiff
– and –
KORYO KOREAN BBQ FRANCHISE CORP. and MTY TIKI MING ENTERPRISES INC.
Defendants
Varoujan Arman, for the Plaintiff
Mark A. Klaiman, for the Defendants
HEARD: July 3, 2015
G. Dow, J.
REASONS FOR JUDGMENT
Corrected decision: The text of the original judgment was corrected on August 13, 2015 and a description of the correction is appended
[1] The plaintiff seeks summary judgment for breach of its contract with the plaintiff to pay rent and related charges arising from a lease dated September 16, 2005 for a 10-year period covering August 1, 2007 to July 31, 2017.
[2] The defendants oppose the motion based on its theory there are genuine issues for trial or, more precisely, the amounts sought by the plaintiff (landlord) are excessive.
Genuine Issue for Trial
[3] The plaintiff relies on Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, a decision of our Supreme Court of Canada, and the comments of Justice Karakatsanis of the need for a broad interpretation of the amended summary judgment rules in Ontario. The amended rule favours “proportionality and fair access to the affordable, timely and just adjudication of claims” (paragraph 5). This matter would appear to be precisely the type of case contemplated given, as set out in paragraph 49 of Hryniak v. Mauldin, the requisite findings of fact can be made, the law can be applied to the facts and a just result can be achieved in a proportionate, more expeditious and less expensive manner than a full trial. Each side has marshalled the important aspects of its case such that the Court is confident in reaching the conclusion set out below.
Facts
[4] The lease involves 341 square feet in a food court in a downtown Toronto office complex operated by the plaintiff. The lease was assigned to the defendant, Koryo Korean BBQ Franchise Corp., October 30, 2011 (Exhibit D to the affidavit of Gordon Smith sworn March 11, 2015). The defendant-franchisee MTY Tiki Ming Enterprises Inc. failed to pay rent sometime in the fall of 2013. The plaintiff served the defendants with a Notice of Default December 6, 2013 regarding arrears of rent in the amount of $10,047.48 (Exhibit E to the affidavit of Gordon Smith sworn March 11, 2015) with the opportunity to reinstate the lease by payment of the arrears in full before midnight on December 9, 2013.
[5] The defendants failed to pay the rent owed and the plaintiff elected to serve its Notice of Termination of Lease December 18, 2013 (Exhibit F to the affidavit of Gordon Smith sworn March 11, 2015) which triggered the end of the defendant’s right of occupancy of the space and the right of the plaintiff, as set out in the lease, to seek various payments from the defendants as found in the Statement of Claim issued December 1, 2014 which was defended by Statement of Defence dated January 14, 2015.
[6] The defendants agreed the sums being claimed in paragraphs 1(a), (b), (c) and (e) of the Statement of Claim totalling $214,419.03 was accurate with regard to rent contemplated by the terms of the lease. The parties agreed that there should be a deduction of $12,549.65 with regard to an adjustment for operating costs charged between 2011 and 2013, the outstanding rent of $10,047.48 which the parties agreed was subsequently paid, a credit of $5,907.83 pertaining to the deposit made by the defendants at the outset of the lease and a capital contribution towards furniture in the food court area of $14,400. This reduces the amount being claimed to $171,514.07.
[7] The parties disagreed on the plaintiff’s claim in paragraph 1(d) of the Statement of Claim which relates to the landlord’s decision to replace the kitchen exhaust system or “ecology unit” and is quantified at $87,315.61. On the basis of the seven letters the plaintiff sent the defendants between September 11, 2009 through to September 13, 2013 and the defendants’ acknowledgement that the unit was in need of repair, I find it was not being properly maintained by the defendants and an additional amount is owed by the defendants to the plaintiff. The plaintiff incurred the following expenses as part of replacing the system with a brand new system:
a) $10,986.99 for mechanical and electrical work performed by De Angelis Construction with quotation dated November 13, 2013 (Exhibit I to the affidavit of Gordon Smith sworn March 11, 2015);
b) $9,045.94 for mechanical engineering design work by TMP Consulting Engineers in accordance with their quotation July 2, 2014 (marked Exhibit J to the affidavit of Gordon Smith sworn March 11, 2015);
c) $64,875.87 for removal and replacement of the kitchen exhaust system by Kentech Automation Inc. supported by their invoices August 25, 2014 and December 8, 2014 (marked Exhibit K to the affidavit of Gordon Smith sworn March 11, 2015);
d) $2,406.81 for electrical engineering services by Mulvey & Banani International Inc. in accordance with their quotation June 27, 2014 (Exhibit L to the affidavit of Gordon Smith sworn March 11, 2015).
[8] To the contrary, the defendants point to evidence from the plaintiff (paragraph 8 of Gordon Smith’s reply affidavit sworn May 27, 2015) that these units have a 15-20 year lifespan before requiring replacement in any event. As a result, the landlord has been placed in a better position than it would have been if the unit had been properly maintained. The defendants also tendered evidence the unit could have been repaired for $5,090 plus HST ($661.70) and new filters for $430.25 plus HST ($55.93) for a total of $6,237.88. It argued based on what was set out in the quotations provided in support of the claim, that more work than necessary was done and resulted in an improvement to the premises beyond that contemplated in the lease and reasonable in law. I agree.
[9] Given the evidence from the plaintiff that repairs to the unit may not have been successful and their own estimate it received in the amount of $26,737 (Exhibit A to the reply affidavit of Gordon Smith sworn May 26, 2015), I assess the claim at 50 percent of the expense or $43,657.80. This would appear to bring the total of the plaintiff’s claim to (171,514.07 + 43,657.80 =) $215,171.87.
[10] The next area of dispute is with regard to the claim for the rent due over the balance of the lease which can be broken into two time frames: between termination, December 18, 2013 and conclusion of the lease July 31, 2017. The first time frame is between December 18, 2013 until the premises was re-rented and rent began to be paid by the new tenant, effective March 1, 2015. The defendants submit the plaintiff was too slow in completing the deal as it did not respond to an April 14, 2014 offer to lease the space until June 24, 2014 and not only negotiated a poor deal at a rate $63 per square foot less ($198 per square foot per annum agreed to by the defendants versus $135 per square foot per annum agreed to by the new tenant) over the same time frame but offered an excessive amount of “free” rent or an inducement to the tenant being the first month of the new lease and the months of July in 2015, 2016, 2017.
[11] This argument is undermined by the admission by the representative of the defendant, Koryo Korean BBQ Franchise Corp. in cross-examination that it is not unusual for commercial leases such as this to take a year to be signed. Overall, it appears the plaintiff could have shown more diligence in completing the deal with the new tenant. This is contrary to its legal duty to mitigate its damages. The Court is prepared to reduce this aspect of the claim by two months’ rent. The understanding is that the defendants were paying $7,993.61 per month in minimum rent plus operating costs or additional rent. This results in a reduction to the plaintiff’s claim in the amount of $15,987.22 or from $215,171.87 to $199,184.65.
[12] The last aspect of the plaintiff’s claim is the differential between the rent owed on the defendants’ lease from March 1, 2015 until January 31, 2017 and the rent being paid by the new tenant. The difference appears to be $63 per square foot (being the difference between the $198 per square foot agreed to by the defendants and the $135 per square foot agreed to by the new tenant). However, the defendant argues the plaintiff’s claim ignores the overall payments to be received by the plaintiff in what the defendants describe as “back ending the deal”. As I understand the argument, the claim by the plaintiff for $63 per square foot for the 29-month period involved is inaccurate because the new tenant’s rent increases to $145 per square foot for the last four years of the seven-year lease. When averaged over the seven years, the rent being paid is $140 per square foot. This affords the defendants a reduction of an additional $5 per square foot per annum on 341 square feet or a reduction of $4,120.42 for the 29-month period involved (using $142.08 per month). The Court accepts this argument which reduces the plaintiff claim from 199,184.65 to 195,064.24.
Assessment of Damages
[13] From the $306,710.77 being claimed by the plaintiff in total, there appear to be the following deductions to be made (as agreed to by the parties or calculated by the Court):
a) $12,549.65 for operating costs adjustments between 2011-2013;
b) $10,047.48 for rent arrears subsequently paid;
c) $5,907.83 pertaining to the deposit made at the outset;
d) $14,400 being the capital contribution towards food court furniture;
e) $43,657.80 being the value of betterment with regard to the replacement of the ecology unit
f) $15,987.22 with regard to the plaintiff’s delay in completing the new lease;
g) $4,120.42 representing a reduction in the calculation of rent owed February 1, 2015-July 31, 2017.
[14] The net figure for damages thus becomes $195,064.24.
Interest
[15] A claim for interest at the rate of 5 percent per annum in excess of the prime commercial rate of interest charged by the Toronto Dominion Bank calculated compounded monthly is being advanced in accordance with section 3.1 of the lease. The plaintiff submitted a chart which indicates the prime commercial rate of interest charged by the Toronto Dominion Bank to be 2.85 percent. The section contemplates interest on rent which is payable whether it be minimum rent or additional rent. While I am prepared to allow such a claim for interest it should only be on the portion of the damages which can be attributed to rent (that is, the portion of the ecology unit allowed would not attract interest at the negotiated rent given it is not, in my view, covered by section 3.1 of the lease). Similarly, the claim for leasing fees in the amount of $4,976.13 set out in the Notice of Motion would not attract interest at this negotiated rate. Overall, and in exercising the Court’s discretion under section 130 of the Courts of Justice Act, R.S.O. 1990 c. C. 43, to determine pre-judgment interest, an award pre-judgment interest in the amount of $15,000 is allowed which the Court admits is a rough calculation based on the factors identified above.
Costs
[16] Section 16 t) of the lease includes a provision for the plaintiff to be paid its “legal fees on a solicitor and client basis”. The cost outline submitted by counsel for the plaintiff totalled $25,603.58 on a substantial indemnity scale, $20,275.40 on a partial indemnity scale. This included disbursements of $1,626.79. In submissions, counsel advised the substantial indemnity scale was 90 percent of the actual account rendered. The partial indemnity scale was indicated to be 70 percent of the actual rate charged. While I accept that the parties bargained for this scale of legal costs, the Court also has the inherent jurisdiction to award and quantify claims for legal expenses. In my view, the hours claimed are modestly excessive and in all the circumstances, costs are fixed payable by the defendants to the plaintiff in the amount of $22,000 inclusive of fees, HST and disbursements.
Mr. Justice G. Dow
Released: August 13, 2015
Corrected decision: The following paragraph replaces the corresponding paragraph in the original judgment issued on August 4, 2015.
[14] The net figure for damages thus becomes $200,040.37.
CITATION: 10 Dundas Street Ltd. v. Koryo Korean BBQ Franchise Corp, 2015 ONSC 4564 COURT FILE NO.: CV-14-517183
DATE: 20150804
ERRATUM RELEASED: 20150813
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
10 DUNDAS STREET LTD.
Plaintiff
– and –
KORYO KOREAN BBQ FRANCHISE CORP. and MTY TIKI MING ENTERPRISES INC.
Defendants
REASONS FOR JUDGMENT
Mr. Justice G. Dow
Released: August 13, 2015